The Value of Takeover Defenses and the Interaction Effects of Firm Characteristics
Abstract
:1. Introduction
2. Previous Literature and Hypothesis
2.1. Previous Studies
2.2. Testable Hypothesis
3. Data and Variables
3.1. Sample Selection
3.2. Variables
3.2.1. Firm Performance and the E-Index
3.2.2. Firm Age, Monitoring Costs, and Advising Needs
3.2.3. Control Variables
4. Empirical Analysis
4.1. Descriptive Statistics
4.2. Univariate Test Results
4.3. Multivariate Test Results
4.3.1. The Relation between Firm Value and E-Index with the Interactions of Firm Age, Monitoring Costs, and Advising Needs
4.3.2. The Relationship between Firm Value and E-Index with Indicator Variables
4.3.3. Endogeneity Regressions
5. Conclusions
Funding
Data Availability Statement
Acknowledgments
Conflicts of Interest
Appendix A
Variables | Definitions |
---|---|
Tobin’s q | Tobin’s q is the measure of firm value. It is defined as the ratio of the market value of assets to the book value of assets. The market value of assets is obtained as Compustat item 6, assets,—item 60, common equity, + market value of equity (item 199, price close, ×item 54, shares outstanding) |
E-index | The E-index measures a firm’s use of takeover defenses. Following Bebchuk et al. (2009), the E-index is the sum of the six indicator variables; each one has a value of one, if exists, and 0 otherwise. The six takeover defenses including classified boards, poison pills, golden parachutes, limits on shareholder amendments of firm bylaws, supermajority requirements to change the firm charter, and supermajority requirements to approve mergers. |
Age | Age is the number of years since the time CRSP first reported a stock price for the firm. |
Intan | Intangibility is one minus the ratio of net property, plant and equipment to the market value of assets. The market value of assets is item 6, assets, ×item 60, common equity, + market value of equity (item 199, price close, ×item 54, shares outstanding) |
Size | Firm size is defined as the log of Compustat item 6, the book value of assets |
Segments | The number of segments. It is the log of the number of business segments. |
R&D | R&D/assets is the ratio of Compustat item 45, research and development expense, to item 6, assets. R&D is set to zero if a firm’s R&D expenditure is missing. |
Leverage | Leverage is the ratio of total debt (item 34, debt in current liabilities, +item 9, long-term debt) to item 6, assets. |
ROA | Return on assets is defined as the ratio of item 18, income before extraordinary items, to item 6, assets |
Capex | Capital expenditure/assets is the ratio of Compustat item 128, capital expenditure, to item 6, assets |
Delaware | Delaware equals to 1 if the firm is incorporated in Delaware and 0, otherwise. |
Pension Fund Ownership | The sum of the 14 largest pension funds’ ownership as a percentage of total shares outstanding. The data are from 13F filings. |
Largest Block Ownership | The percentage of largest institutional ownership to total shares outstanding. |
CEO Ownership | CEO ownership is a percentage of total shares outstanding. Its squared term is also included in the regression models. |
CEO Delta | CEO Delta is computed as the dollar changes in the value of a CEO’s stocks and stock options for a 1% change in the stock price. CEO compensation data are from the Execucomp database. |
CEO Vega | CEO Vega is the dollar changes in a CEO’s stock option value for a 1% change in the standard deviation of the stock returns. |
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Variables | Mean | Median | 5% | 95% | Min. | Max. | |
---|---|---|---|---|---|---|---|
Main Variables | Tobin’s q | 1.94 | 1.52 | 0.88 | 4.61 | 0.71 | 8.04 |
E-index | 2.25 | 2.00 | 0.00 | 4.00 | 0.00 | 6.00 | |
Age | 25.61 | 19.50 | 5.00 | 72.00 | 3.00 | 79.00 | |
Intan | 0.78 | 0.85 | 0.38 | 0.98 | 0.23 | 0.99 | |
Size | 7.26 | 7.08 | 5.06 | 10.02 | 2.59 | 12.92 | |
Controls | Segments | 2.60 | 2.00 | 1.00 | 6.00 | 1.00 | 8.00 |
R&D | 0.05 | 0.00 | 0.00 | 0.22 | 0.00 | 0.66 | |
Leverage | 0.30 | 0.30 | 0.00 | 0.68 | 0.00 | 1.19 | |
ROA | 0.03 | 0.05 | −0.16 | 0.16 | −0.66 | 0.24 | |
Capex | 0.06 | 0.04 | 0.01 | 0.16 | 0.00 | 0.27 | |
Delaware | 0.58 |
Tobin’s q | E-Index | Age | Intan | Size | Old | Monitor | Advise | |
---|---|---|---|---|---|---|---|---|
Tobin’s q | 1.00 | |||||||
E-index | −0.13 | 1.00 | ||||||
Age | −0.12 | 0.07 | 1.00 | |||||
Intan | 0.48 | −0.06 | −0.19 | 1.00 | ||||
Size | −0.06 | 0.04 | 0.45 | −0.22 | 1.00 | |||
Indicator Variables: | ||||||||
Old | −0.14 | 0.14 | 0.77 | −0.19 | 0.28 | 1.00 | ||
Monitor | 0.46 | −0.08 | −0.18 | 0.78 | −0.18 | −0.16 | 1.00 | |
Advise | −0.05 | 0.08 | 0.35 | −0.20 | 0.80 | 0.24 | −0.15 | 1.00 |
Variable | Sort | Below-Median Firms | Above-Median Firms | t-Test | Mann–Whitney z-Test |
---|---|---|---|---|---|
Old | 2.12 [1.65] | 1.76 [1.41] | 15.57 *** | 15.32 *** | |
Tobin’s q | Monitor | 1.35 [1.24] | 2.52 [2.02] | −56.01 *** | −58.16 *** |
Advise | 2.00 [1.56] | 1.88 [1.48] | 5.10 *** | 4.69 *** | |
Old | 2.07 [2.00] | 2.43 [3.00] | −15.96 *** | −16.15 *** | |
E-index | Monitor | 2.34 [2.00] | 2.15 [2.00] | 8.71 *** | 8.37 *** |
Advise | 2.15 [2.00] | 2.35 [2.00] | −8.93 *** | −8.66 *** |
Variables | Model 1 | Model 2 | Model 3 | Model 4 | Model 5 | Model 6 | Model 7 |
---|---|---|---|---|---|---|---|
E-index | −0.057 *** | −0.067 *** | 0.185 *** | 0.134 *** | 0.062 * | 0.183 *** | 0.496 *** |
E-index × Age | 0.0004 | −0.0002 | 0.002 ** | 0.001 *** | −0.004 *** | −0.003 *** | |
E-index × Intan | −0.310 *** | −0.244 *** | −0.306 *** | ||||
E-index × Intan × Age | −0.003 *** | −0.002 * | |||||
E-index × Size | −0.020 *** | −0.036 *** | −0.045 *** | ||||
E-index × Size × Age | 0.001 *** | 0.001 *** | |||||
Age | −0.001 * | −0.002 * | −0.001 | −0.001 | −0.004 *** | −0.004 *** | −0.003 *** |
Intan | 3.879 *** | 3.878 *** | 4.559 *** | 4.556 *** | 3.881 *** | 3.852 *** | 4.618 *** |
Size | 0.016 * | 0.017 * | 0.017 * | 0.018 * | 0.060 *** | 0.062 *** | 0.076 *** |
Intercept | −2.302 *** | −2.278 *** | −2.886 *** | −2.887 *** | −2.584 *** | −2.539 *** | −3.317 *** |
Controls | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
Industry-fixed effects | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
Year-fixed effects | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
Adj. R2 | 0.4455 | 0.4455 | 0.4489 | 0.4491 | 0.4461 | 0.4469 | 0.4513 |
N | 11,904 | 11,904 | 11,904 | 11,904 | 11,904 | 11,904 | 11,904 |
Variables | Model 1 | Model 2 | Model 3 | Model 4 |
---|---|---|---|---|
E-index | −0.085 *** | −0.021 ** | −0.056 *** | 0.024 * |
E-index × Old | 0.060 *** | 0.057 *** | 0.051 *** | 0.047 *** |
E-index × Monitor | −0.115 *** | −0.129 *** | ||
E-index × Monitor × Old | −0.041 *** | −0.035 ** | ||
E-index × Advise | −0.069 *** | −0.091 *** | ||
E-index × Advise × Old | 0.038 *** | 0.040 *** | ||
Old | −0.223 *** | −0.175 *** | −0.249 *** | −0.209 *** |
Monitor | 1.033 *** | 1.346 *** | 1.033 *** | 1.372 *** |
Advise | 0.087 *** | 0.090 *** | 0.197 *** | 0.248 *** |
Intercept | 0.607 *** | 0.359 | 0.552 ** | 0.259 |
Controls | Yes | Yes | Yes | Yes |
Industry-fixed effects | Yes | Yes | Yes | Yes |
Year-fixed effects | Yes | Yes | Yes | Yes |
Adj. R2 | 0.4180 | 0.4228 | 0.4187 | 0.4240 |
N | 11,904 | 11,904 | 11,904 | 11,904 |
F-tests for Interactions: | ||||
Partial Effect: E-index × Old + E-index × Monitor + E-index × Monitor × Old | −0.117 *** | |||
Partial Effect: E-index × Old + E-index × Advise + E-index × Advise × Old | −0.004 | |||
Total Effect: E-index + E-index × Old + E-index × Monitor + E-index × Monitor × Old | −0.093 *** | |||
Total Effect: E-index + E-index × Old + E-index × Advise + E-index × Advise × Old | 0.020 ** |
Tobin’s q | Industry-Adjusted q | |||
---|---|---|---|---|
Variables | Model 1 | Model 2 | Model 3 | Model 4 |
OLS | 2SLS | OLS | 2SLS | |
E-index | 0.025 * | 0.028 ** | ||
E-index × Old | 0.039 ** | 0.029 * | ||
E-index × Monitor | −0.102 *** | −0.096 *** | ||
E-index × Monitor × Old | −0.038 *** | −0.044 *** | ||
E-index × Advise | −0.073 *** | −0.073 *** | ||
E-index × Advise × Old | 0.039 *** | 0.041 *** | ||
Instrumented E-index | −0.078 *** | −0.116 *** | ||
Instrumented E-index × Old | 0.009 | 0.029 | ||
Instrumented E-index × Monitor | 0.176 *** | 0.248 *** | ||
Instrumented E-index × Monitor × Old | −0.063 *** | −0.088 *** | ||
Instrumented E-index × Advise | 0.057 *** | 0.090 *** | ||
Instrumented E-index × Advise × Old | −0.002 | −0.037 | ||
Old | −0.159 *** | −0.016 | −0.110 *** | −0.028 |
Monitor | 1.172 *** | 0.608 *** | 1.016 *** | 0.658 *** |
Advise | −0.045 | −0.261 *** | −0.019 | −0.161 *** |
Intercept | 0.415 ** | 0.557 *** | −0.875 *** | −0.772 *** |
Controls | Yes | Yes | Yes | Yes |
Additional Controls | Yes | Yes | Yes | Yes |
Industry-fixed effects | Yes | Yes | Yes | Yes |
Year-fixed effects | Yes | Yes | Yes | Yes |
Adj. R2 | 0.4677 | 0.4743 | 0.3441 | 0.3531 |
N | 11,904 | 11,904 | 11,882 | 11,882 |
F-tests for Interactions: | ||||
Partial Effect: E-index × Old + E-index × Monitor + E-index × Monitor × Old | −0.101 *** | 0.122 *** | −0.111 *** | 0.189 *** |
Partial Effect: E-index × Old + E-index × Advise + E-index × Advise × Old | 0.005 | 0.064 *** | −0.003 | 0.082 *** |
Total Effect: E-index + E-index × Old + E-index × Monitor + E-index × Monitor × Old | −0.076 *** | 0.044 *** | −0.083 *** | 0.073 *** |
Total Effect: E-index + E-index × Old + E-index × Advise + E-index × Advise × Old | 0.030 *** | −0.014 *** | 0.025 *** | −0.034 *** |
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Ahn, S. The Value of Takeover Defenses and the Interaction Effects of Firm Characteristics. J. Risk Financial Manag. 2024, 17, 369. https://doi.org/10.3390/jrfm17080369
Ahn S. The Value of Takeover Defenses and the Interaction Effects of Firm Characteristics. Journal of Risk and Financial Management. 2024; 17(8):369. https://doi.org/10.3390/jrfm17080369
Chicago/Turabian StyleAhn, Seoungpil. 2024. "The Value of Takeover Defenses and the Interaction Effects of Firm Characteristics" Journal of Risk and Financial Management 17, no. 8: 369. https://doi.org/10.3390/jrfm17080369